ACB to sweeten the deal Aurora Cannabis Inc. intends to sweeten its offer for medical marijuana producer CanniMed Therapeutics Inc. in an attempt to turn its hostile takeover attempt into a friendly deal.
Aurora contacted CanniMed with an enriched overture late on Wednesday as the success of its unsolicited, all-stock bid, launched in November, looked increasingly remote, sources said. The move comes as the battle has become particularly heated, marked by rancorous public statements and legal action.
The current bid is conditional on Saskatoon-based CanniMed abandoning its own takeover of Newstrike Resources Inc., a small, recreational-pot company backed by members of the Tragically Hip. Newstrike shareholders overwhelmingly approved that deal on Wednesday, and CanniMed shareholders were slated to vote on it next Tuesday.
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CanniMed said it has now postponed its shareholder meeting by two days so it could discuss "a possible transaction" with Aurora. It gave no assurance that a deal would result. The two sides declined to discuss the details, having signed a standstill agreement while the talks proceeded
"Let's see what comes of this. You go into something like this with an open mind and see if you can make good things happen," Cam Battley, Aurora's chief corporate officer, said in an interview.
Sources familiar with the discussions said Aurora is now open to the idea of allowing Newstrike into the deal.
The proposed share exchange would likely have to be sweetened as well, given the runup in CanniMed stock, which has more than doubled since Aurora first disclosed it was interested in a deal in November.
Mr. Battley wouldn't discuss specifics, but acknowledged that the market for cannabis stocks has leaped since Aurora announced its bid.
"We've been among the primary beneficiaries of that. Beyond that, we're also aware that this sector has seen a certain degree of volatility – there have been a couple of pullbacks. So it will be important for us to monitor the market conditions," he said.
The takeover battle is just one flare-up in an industry that is booming as Ottawa gets set to legalize recreational weed later this year. Stock prices have hit numerous new highs in recent months and producers have taken advantage by issuing hundreds of millions of dollars worth of shares to fund acquisitions and greenhouse expansions.
Currently, Aurora is offering 4.53 of its shares for each CanniMed share, but it is capped at $24 per CanniMed share, above which the number of Aurora shares decreases. CanniMed has consistently traded above $24 this year, and on Thursday surged 17 per cent to $32.60.
The runup in prices was cited by influential proxy advisory firms Institutional Shareholder Services and Glass Lewis when they recommended CanniMed shareholders vote for the Newstrike deal rather than the takeover by Aurora.
"Had Aurora been truly serious about acquiring the company for a fair value, we believe that Aurora would have proposed a structure that did not cap the value being offered to CanniMed shareholders," Glass Lewis said in its report.
Aurora's attempt at a rapprochement shows that it still sees CanniMed as a plum, and does not want its work trying to acquire it to be for naught, said Russell Stanley, an analyst at Echelon Wealth Partners.
CanniMed has the longest production record of marijuana companies in Canada and it is also known for its strength in value-added products such as cannabis oils, Mr. Stanley said.
"It's the better part of a couple of months that this deal has been in the works and they haven't let up, so clearly they see value in the assets," he said.
Investors with 36 per cent of CanniMed shares had committed to the hostile bid for CanniMed from Aurora, which prompted one of the more pointed salvos in the takeover battle.
Last week, CanniMed filed a lawsuit against one of its own directors and a former board member as well as its largest investors, Aurora and investment dealer Canaccord Genuity Group Inc., for allegedly misusing confidential information and conspiring to engineer Aurora's hostile takeover of CanniMed. It seeks damages of $725-million. The allegations have not been proven in court.